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Making Sense of Non-Binding Retail-Price Recommendations

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Author Info
Stefan Bühler () (University of St.Gallen)
Dennis L. Gärtner () (Socioeconomic Institute, University of Zurich)

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Abstract

This paper provides a theoretical rationale for non-binding retail price recommendations (RPRs) in vertical supply relations. Analyzing a bilateral manufacturer-retailer relationship with repeated trade, we show that linear relational contracts can implement the surplus-maximizing outcome. If the manufacturer has private information about production costs or consumer demand, RPRs may serve as a communication device from manufacturer to retailer. We characterize the properties of efficient bilateral relational contracts with RPRs and discuss extensions to settings where consumer demand is affected by RPRs, and where there are multiple retailers or competing supply chains.

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File URL: http://www.soi.uzh.ch/research/wp/2009/wp0902.pdf
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Publisher Info
Paper provided by University of Zurich, Socioeconomic Institute in its series Working Papers with number 0902.

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Length: 30 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:soz:wpaper:0902

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Related research
Keywords: vertical relationships; relational contracts; asymmetric information; price recommendations;

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Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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  1. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June. [Downloadable!] (restricted)
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This page was last updated on 2009-11-4.

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